Photo of Varun Kannan

Associate in the General Corporate Practice at the Mumbai office of Cyril Amarchand Mangaldas. Varun can be reached at varun.kannan@cyrilshroff.com

Extra-territorial application of India’s securities law – Has SEBI cast its net too wide?

If a connection exists, it is for the Legislature to decide how far it should go in the exercise of its powers.[1]

Introduction

The territorial application of laws made by Parliament is enshrined in Article 245 of the Constitution of India (“Constitution”). The universal presumption that laws made by a country are limited to its own territorial borders, is provided under Article 245(1) of the Constitution, which provides that “Subject to the provisions of this Constitution, Parliament may make laws for the whole or any part of the territory of India.” However, Article 245(2) of the Constitution carves out a specific exception providing that a law made by Parliament, pursuant to Article 245(1), shall not be invalidated on the ground that such a law would have extra-territorial operation. Most countries have enacted extra-territorial laws with the US being the clear leader in this regard having enacted anti-corruption law, securities laws etc. which have extra-territorial application.


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IS THE AUDIT PROFESSION AT CROSS-ROADS

Introduction

Recent amendments to the statutory framework under the Companies Act, 2013 (“the Act”), have cast focus on the ever-expanding statutory duties of the auditors of a company. The purpose of an audit is to enhance the degree of confidence of users of the financial statements. In this regard, Section 129 of the Act provides that the financial statements prepared by a company should comply with three prime conditions:
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New CSR Regime – Is it a philanthropy or a tax levy?

The Ministry of Corporate Affairs (“MCA”), Govt of India, notified the amendments to Section 135 of the Companies Act, 2013 (“the Act”), (dealing with CSR contribution), by the Companies (Amendment) Act, 2019 (“2019 Amendment”), and the Companies (Amendment) Act, 2020 (“2020 Amendment”), on January 22, 2021. The MCA has also notified the Companies (CSR Policy) Amendment Rules, 2021 (“new CSR Rules”), which has made some fundamental changes to the CSR Rules, 2014.
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Supreme Court on Section 482 CrPC - Have the inherent powers of High Courts been diluted

Recently, in Neeharika Infrastructure Private Limited v. State of Maharashtra[1] (“Neeharika Infrastructure”) a three-judge bench of the Supreme Court (“SC”) pronounced a detailed judgment on the powers of the High Court (“HC”), while adjudicating a petition for quashing of the FIR – filed under Section 482 of

New Remuneration Regime for Independent Directors - Will It help in attracting better talent on the boards of India Inc

Recently, the Ministry of Corporate Affairs (‘MCA’) has notified the amendments made to Sections 149(9) and 197(3) of the Companies Act, 2013 (‘2013 Act’) by the Companies (Amendment) Act, 2020 (‘2020 Amendment’) -to enable companies faced with absence or inadequacy of profits to pay certain minimum guaranteed remuneration to Non-Executive Directors (‘NEDs’) and Independent Directors (‘IDs’), as may be prescribed. On the same day, the MCA also issued a Notification to amend Schedule V of the 2013 Act to prescribe the scale of remuneration which can be paid to NEDs and IDs, depending on the effective capital of the company.
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Computation of ‘net profits’ for Managerial Remuneration – Has this provision outlived its utility

Introduction

Section 198 of the Companies Act, 2013 (‘2013 Act’), prescribes a special method for computation of ‘net profits’ of a company in a financial year — which has different rules for arriving at net profit than the one prescribed under Accounting Standards.

The special methodology for computation of net profits prescribed under Section 198 is used for two purposes – (i) for determining managerial remuneration under Section 197 and Schedule V; and (ii) for determining the minimum CSR amount to be spent by the company in a financial year, under Section 135(5) of the 2013 Act.
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Evidentiary value of Parliamentary Committee Reports 

In Kalpana Mehta v Union of India (‘Kalpana Mehta judgment’)[1], a Constitution Bench of the Supreme Court (‘SC’) pronounced a detailed judgment on whether Courts can place reliance on the Report of a Parliamentary Standing Committee (‘PSC’). The SC also examined whether the factual observations made in a PSC Report can be contested or challenged by the parties, during a judicial proceeding.

This decision arose from a referral order issued by a two-judge bench of the SC. The two-judge bench took the view that this was a ‘substantial question of law’ – that should be adjudicated by a Constitution Bench in accordance with Article 145(3) of the Constitution. While the Constitution Bench took a unanimous view, three separate concurring opinions were issued by Justice Dipak Misra, Justice Dr. D Y Chandrachud and Justice Ashok Bhushan.
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Minimum Interest Rates on loans to foreign WOS – Need for Review

Inter-corporate loans granted by a company are regulated under Section 186 of the Companies Act, 2013 (‘2013 Act’). One important pre-condition relates to the interest rate thresholds prescribed under sub-section (7). Section 186(7) of the Act states that – “No loan shall be given under this Section at a rate of interest lower than the prevailing yield of one-year, three-year, five-year or ten-year Government Security closest to the tenor of the loan.

Section 186(7) effectively prevents a company from giving an inter-corporate loan at a rate of interest lower than the prescribed thresholds, i.e. the prevailing yield of one-year, three-year, five-year or ten-year government security closest to the tenor of the loan. This leads to multiple practical difficulties, especially in situations where a holding company wishes to provide funds to its foreign wholly owned subsidiaries (‘WOS’).
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New CSR Regime – Is it too prescriptive

The Ministry of Corporate Affairs (‘MCA’) notified the amendments made to Section 135 of the Companies Act, 2013 (‘the Act’) – via the Companies (Amendment) Act, 2019, and the Companies (Amendment) Act, 2020, on January 22, 2021.

On the same day, the MCA also notified the Companies (Corporate Social Responsibility) Amendment Rules, 2021 (‘new CSR Rules’). These Rules have made significant changes to the regulatory framework governing the monitoring and evaluation of CSR activities, and the utilisation of CSR expenditure.

In this blog, we shall focus on the new CSR Rules, and examine its implications for India Inc. The implications of the changes made by the new CSR Rules are analyzed below.
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